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Institute for Supply Management (ISM) Manufacturing

Tue, Jun 30 2009, 10:34 GMT
by Tim Salem

FXstreet.com Independent Analyst Team

This Data Point largely measures the Supply Side-Factors for Manufacturing and other Sectors of the Economy. The Data is released the First Week after the Reporting Month on the1st Business Day of the Month at approximately 14:00 GMT.

• The ISM-Manufacturing Release is a historical “Market-Mover”, as both the Manufacturing and Services Factors give a very Real-Time Assessment of the overall Health of the Economy.
• This First factor is based on a Survey and Comments from Purchasing Managers, while the Second is based largely on the Non-Manufacturing Sector.
• The Purchasing Managers are surveyed due to the fact that they supervise Order Flow for their respective Company or Firm, and if the Flow is increasing or decreasing.
• The PM’s will then adjust their Orders by “filling” them with either More or Less Supply as the Climate deems necessary.

The Numbers and How They are Derived

Approximately 400-Member Companies and Firms Households will receive Questionnaires nationwide from 20 Industries. The Purchasing Managers are asked if the following Seven Areas have seen either Rising, Falling, or Steady Growth:

1. 1. New Orders.
2. 2. Production.
3. 3. Employment.
4. 4. Supplier/Customer/and Own Inventories
5. 5. Commodity Prices.
6. 6. New Export Orders and Imports.
7. 7. Backlog Orders.

Trading Ideas

Some Market Reactions to the Institute for Supply Management – Manufacturing Data prior to and after the Release are:

CURRENCIES: A Healthy Economy with Inflation “In-Check” will usually see an “Expansion” Reading of “50” or above, and will cause Dollar Strength in the Immediate-Term of Release. The Month-Over-Month Reading is CRUCIAL here as a “Number inside the Number”… and significant “Contraction” below “50” will see Dollar Weakness against other Currency Units.

BONDS: An Expansion Reading above “50” is seen as Negative and bearish for Bonds, especially if the overall Economy has been strengthening and expanding with other Positive Factors. A “Weaker” Reading below “40” will be Positive for Bonds and increase Strength, as this emphasizes a weaker Manufacturing Sector. A “Midrange” reading of “40” to “50” will result in largely Flat Impact and reactions from Traders as a whole.

EQUITIES: An Expansion reading above “50” is seen “Inversely” from Bonds, and Equities will find Strength, especially after moderate to average Readings previously. If a positive Reading is seen in a strong overall Economy, then Equities may actually fall in a “Counter-Intuitive” fashion. This is due to the Sentiment of the Economy being “overextended” and more importantly… sees the possibility of Action by the Federal Reserve to raise Interest Rates.

Traders may take Cues from overall Volume Builds in Currency Futures ahead of this Release, (as well as other “Index” Releases such as the Philly Fed and Empire Indexes). A look at the most current Commitment of Traders Report may provide some Insight in where the larger Institutional and Retail Positions stand.

A more Direct Scenario may be to look at a 5 or 15-Minute Time Cycle, and if Consensus and the actual Release comes in above the “50” Threshold, Traders may cue a Bearish Candle for Short Positions… as the Reading will be Dollar Positive.

Conversely the opposite is viable as well, with a Bullish Candle to cue Long Positions for Dollar-Weak Readings significantly below the “50” Threshold.

*Number of months moving in current direction

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Published on  Wed, Jul 1 2009, 08:36 GMT